I've often pondered the exact consequences of these issues of equity too. I know for sure that they do not adversely effect current holders. In fact they issue the equity normally when the share price is higher than the NAV. So they get cash for the new shares at the share price and can buy more of the underlying assets at a lower price.

What I'm not too sure on is the effects on dividends. If anyone in the know can clarify that would be great. I have a feeling the dividend reserves does get diluted. Also it seems that the current years accumulated dividend might get diluted too. Dividends received before the issue was from fewer shares but gets paid out to the increased number of shares.

So my theory is they minimally help capital value but less minimally hinder dividends. Am I close?

ITs use the sale of new shares above NAV as part of their discount control mechanism. If the shares are at a discount, then they buy some back. Both actions work in favour of existing shareholders. I went to the BCI AGM yesterday and Julian Cane was asked this precise question. The last time that BCI bought back shares was December 2017.

tjh290633 wrote:ITs use the sale of new shares above NAV as part of their discount control mechanism. If the shares are at a discount, then they buy some back. Both actions work in favour of existing shareholders. I went to the BCI AGM yesterday and Julian Cane was asked this precise question. The last time that BCI bought back shares was December 2017.TJH

nmdhqbc wrote:I've often pondered the exact consequences of these issues of equity too. I know for sure that they do not adversely effect current holders. In fact they issue the equity normally when the share price is higher than the NAV. So they get cash for the new shares at the share price and can buy more of the underlying assets at a lower price.

Up to a point, Lord Copper.

Adverse effect on current holders is a matter of the current holder's perspective. When they issue new shares is when demand is high, so shares could be expected to move to a (higher) premium if no new shares were issued. Some existing holders - those looking to sell, or those to whom nominal portfolio value matters for reasons like determining the tax-free lump sum from a pension - would stand to benefit from a higher premium.

Some ITs are basically managed as OEICs. A sure sign of that is the frequent (sometimes daily) notices of share issuance/buyback when at a premium/discount. Authority for the directors to do that is presumably rubber-stamped in a resolution at each AGM.